Friday, February 28, 2020
Outdated Regulations Hinder Technology Development and Corporate Growth
Companies Hobbled by Excessive Regulations
Outdated Regulations Hinder Technology Development and Corporate Growth
  • By Jung Suk-yee
  • January 6, 2020, 09:51
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Korean companies leading new industries are caught in the trap of excessive regulations.

The Korean government says that it will revitalize the economy through regulatory innovation, but companies leading new industries are caught in the trap of excessive regulations.

In the field of biotechnology, which constitutes a key growth engine in the 4th Industrial Revolution era, many regulations hinder companies’ growth, including disallowing customized stents and recycling of waste fat. The biotechnology industry has consistently demanded for years that the government increase items that can be sold through direct to consumer (DTC), a sales method whereby private companies provide genetic testing to consumers without the involvement of a health-care provider. In response, the Ministry of Health and Welfare expanded the items for DTC genetic testing services from 12 to 56 on Dec. 18, 2018. However, despite strong demand from the industry, genetic testing for serious illnesses including cancer and Alzheimer's disease is not included in the latest expansion.

In addition, there are still regulations that restrict the business activities of conglomerates, which are struggling to widen their lead in the global market. One representative example is the controversy over whether to allow corporate venture capital (CVC). CVC refers to a venture capital company that non-financial conglomerates set up in the form of a subsidiary to increase synergy between their businesses. It is different from a general venture capital company that the government or institutional investors set up with the simple aim of earning financial gains.

As global ICT companies actively invested in CVC, the amount of CVC investments surged from US$10.6 billion in 2013 to US$53 billion in 2018, according to a report published by the National Assembly Research Service (NARS) on Dec. 31, 2019. Google Ventures, GE Ventures and Intel Capital are representative global CVCs.

However, Article 8 of the Korean Monopoly Regulation and Fair Trade Act states that a general holding company, not a financial holding company, is not allowed to own a CVC due to the principle of the separation of banking and commerce. This article intends to restrict by conglomerates’ financial investment aimed at reckless business expansion and capital gain, but industry insiders say that it is an outdated regulation which hinders the expansion of venture ecosystem. “Unlike Samsung Group, which is not under a holding company system, LG, SK and GS groups are all affected by this regulation,” said Park Jae-yeong, an officer from the NARS.

Furthermore, the legislature, which is supposed to alleviate the difficulties of companies through lawmaking, is engrossed only in creating more regulations. Lawmakers of the 20th National Assembly, which opened in May 2016, proposed up to 3,795 regulation bills for three years and seven months. These bills contain a whopping 3,795 regulation provisions in total.